What impact do interest rates have on loans in the United States?

• Investigate the correlation between interest rates and the number of loans issued in each category.
• Analyze how variations in interest rates influence the total dollar amount of issued loans for each loan category.
• Assess the impact of rising and falling interest rates on the delinquency rates of loan payments.

Our hypothesis posits that higher interest rates will result in:

• A decrease in total dollar amount of loans.
• A decrease in the number of loans.
• An increase in the delinquency of loan payments.

These effects are expected to be observed across four types of loans: mortgages, credit cards, auto loans, and student loans.

Quarterly datasets include:

• Interest Rates: Mortgages, 48-month auto loans, credit cards (Federal Reserve Bank of St. Louis).
• Student loans (Federal Student Aid).
• Debt Statistics (New York Fed’s Center for Microeconomic Data).
• Consumer Price Index CPI (U.S. Bureau of Labor Statistics).

Coverage period: From 2003 to 2023.

• All tables were joined together based on ‘Year’ and ‘Quarter’
• To account for inflation, the Total Dollar Loan Amount was adjusted using the following formula:

Adjusted Amount = (Unadjusted Amount / CPI for Quarter) * 100

• Monthly Consumer Price Index (CPI) was averaged across months to derive quarterly figures.

• Auto Loans seem to heavily dependent on interest rates and move in ways we hypothesized
• Mortgages, Credit Cards, and Student Loans have more complicated relationships with interest rates. Some ideas for why are…
  • Mortgages - Likely because people need somewhere to live and ability to refinance allow for more complex relationship
  • Credit Card - Consumer spending habits don’t depend strongly on interest rates
  • Student Loans - Interest rates aren’t a deciding factor in whether people go to school or not
• Interest Rates and their affect on the economy is complex and not a straightforward relationship